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Comcast Trumps Cablevision

Why the big Comcast-Cablevision P/E mismatch?

There's perhaps nothing that'll make investors salivate more than discovering a valuation mismatch between two companies in the same sector. That appears to be what's going on in the cable group these days.

Look at the discrepancy between industry leader Comcast(NASDAQ:CMCSA) and Long Island's Cablevision(NYSE:CVC). Comcast provides its triple-play group of video, telephone, and high-speed data to subscribers in many locations across the country. It also owns The Golf Channel, Versus, and E!, along with several sports franchises.

Cablevision offers its own triple play in the New York metropolitan area and includes among its cable channels AMC, the Sundance Channel, and WE TV. It also owns Madison Square Garden arena, Radio City Music Hall, several professional sports franchises, and now the Newsday newspaper.

Let's take a quick numerical look at the pair:

Comcast

Cablevision

Cable Subscribers (millions)

24

3

Market Cap (billions)

62

9

Forward P/E

19

27

Operating Margin

19.0%

16.0%

Dividend Yield

1.20%

1.3%

From this purely quantitative perspective, I find it difficult to make a case for a position in Cablevision over one in Comcast, at today's prices. That’s especially true when you note the price-to-earnings differential between the pair.

Beyond that, as a former cable dart-thrower, I'd rank Comcast's management clearly at the top of its group. But Cablevision has a plus and a couple of minuses on its side of a qualitative ranking between the two companies. First, its service area, which spans portions of western Connecticut, Long Island, northern New Jersey, Westchester County, and New York City -- with the exception of Manhattan, much of which is aTime Warner Cable(NYSE:TWC) franchise -- is demographically top-notch.

At the same time, Cablevision's clustered urban and suburban concentration makes it something of a target for Verizon's (NYSE:VZ) FiOS offering. But it also provides a little protection from satellite providers DirecTV(NASDAQ:DTV) and Dish Network(NASDAQ:DISH).

Finally, I find it hard to explain what Cablevision is doing with Newsday. I know it's tempting to buy one's local daily newspaper, but newspapers are a business that nobody should enter willfully these days. With all of that in mind, it's almost impossible to understand Cablevision's 40%-plus valuation premium.